{"id":57512,"date":"2023-03-11T12:35:35","date_gmt":"2023-03-11T10:35:35","guid":{"rendered":"https:\/\/ironfx-com-php8.wp-dev.int.theitops.net\/?p=57512"},"modified":"2025-12-03T12:53:48","modified_gmt":"2025-12-03T10:53:48","slug":"why-aig-was-too-big-to-fail","status":"publish","type":"post","link":"https:\/\/www.ironfx-id.com\/es\/why-aig-was-too-big-to-fail\/","title":{"rendered":"Why AIG was too big to fail"},"content":{"rendered":"

The American International Group<\/span><\/a>, Inc. (AIG) is a global insurance organisation with headquarters in New York and London. It began in 1919 as American Asiatic Underwriters in Shanghai, China. Today, AIG\u2019s companies provide property and casualty coverage, life insurance, retirement products, and other financial services in about 70 countries and jurisdictions. AIG\u2019s common stock trades on the New York Stock Exchange.<\/p>\n\n\n\n

2008 financial crisis<\/strong><\/h2>\n\n\n\n

AIG has faced several major challenges throughout its history, including its near-collapse in 2008, which threatened the financial stability of the entire United States. During the crisis, the company became one of the institutions that received a government bailout because it was considered \u201ctoo big to fail.\u201d<\/p>\n\n\n\n

What brought AIG to near insolvency?<\/strong><\/h3>\n\n\n\n

Around 2008, a new financial product entered the market called a collateralized debt obligation, or CDO. The idea behind it was simple: combine different types of debt, known as tranches, into a single bundle and sell it to investors. Many large institutions created CDOs because they held large amounts of mortgage-backed securities. The problem was that many of these bundles included subprime loans, mortgages issued during the housing bubble to borrowers who could not afford to repay them.<\/p>\n\n\n\n

AIG Financial Products (AIGFP), a division of AIG, sold insurance to protect investors from losses. The division expanded rapidly by insuring CDOs against default through a product called a credit default swap. At the time, AIGFP believed that defaults on these loans would be rare, so the risk of paying out large claims seemed minimal. This confidence ignored a crucial issue: many of the insured CDOs contained bundled mortgages, and the lowest-rated tranches were filled with subprime loans.<\/p>\n\n\n\n

When the housing bubble burst and foreclosures surged to record levels, AIG had to honor its insurance commitments. AIG Financial Products suffered losses of about $25 billion from these payouts alone. The company then faced even more losses when its credit rating dropped, which forced AIG to post additional collateral for its bondholders.<\/p>\n\n\n\n

\"The<\/figure>\n\n\n\n

Why was <\/b>American International Group considered too big to fail?<\/strong><\/h2>\n\n\n\n

AIG was considered too important to the global economy to allow it to fail. Many mutual funds, pension funds, and hedge funds were either insured by the company or had invested heavily in it. Investment banks also relied on AIG because their CDO holdings were insured by the firm, meaning they could lose billions if AIG collapsed. Goldman Sachs was one of the institutions at risk. Money market funds faced similar danger, since many of them held AIG bonds and would have suffered large losses if the company went under.<\/p>\n\n\n\n

The U.S. government stepped in with a bailout to prevent the crisis from worsening. According to the U.S. Department of the Treasury, its total support for AIG during the financial crisis reached about $182 billion. This amount included nearly $70 billion from the TARP program and $112 billion from the Federal Reserve Bank of New York.<\/p>\n\n\n\n

American International Group <\/strong>today<\/strong><\/h2>\n\n\n\n

AIG has since moved on from the 2008 crisis and remains a major player in the insurance industry today.<\/p>\n\n\n\n

AIG 4th quarter and full year 2022 results<\/strong><\/h3>\n\n\n\n

According to an AIG press release on 15 February 2023, these are some notable results announced:<\/p>\n\n\n\n